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[2013] QSC 196
Supreme Court of Queensland
2013-07-31
Atkinson J
Original judgment source is linked above.
SUCCESSION - PROBATE AND LETTERS OF ADMINISTRATION - COSTS - WHERE LITIGATION CAUSED BY TESTATOR, EXECUTOR OR INTERESTED PERSONS - GENERALLY - where application made pursuant to Trusts Act 1973 (Qld) s 96 - where directions sought concerning continuing litigation on behalf of, and at the expense of the estate - where probate granted to executor had been revoked and a grant of letters of administration annexing the will was made to administrator - where the value of the estate was substantially depleted - whether the trustee should continue to prosecute the principal proceeding
SUCCESSION - PROBATE AND LETTERS OF ADMINISTRATION - COSTS - WHERE LITIGATION CAUSED BY TESTATOR, EXECUTOR OR INTERESTED PERSONS - GENERALLY - where the former executor did not apply to the court for directions under Trusts Act 1973 (Qld) s 96 - whether former executor should be entitled to continue the principal proceeding as a derivative action by
SUCCESSION - PROBATE AND LETTERS OF ADMINISTRATION - COSTS - WHERE LITIGATION CAUSED BY TESTATOR, EXECUTOR OR INTERESTED PERSONS - GENERALLY - whether costs of further indemnifying the former executor for legal costs should be borne by the estate
SUCCESSION - FAMILY PROVISION - CRITERIA FOR DETERMINING APPLICATION - TREATMENT OF PARTICULAR APPLICANTS - SURVIVING SPOUSE OR PARTNER - PARTICULAR CASES - where directions sought concern the application by the Public Trustee for further provision on behalf of spouse - whether trustee should defend proceedings
Law of Property Amendment Act 1859 (UK) (Lord St Leonards' Act), s 30
Succession Act 1981 (Qld) s 41
Trusts Act 1973 (Qld) s76, s 96, s 97
Trustee Act 1925 (ACT) s 63
Trustee Act 1925 (NSW) s 63
Trustee Act 1936 (SA) s 91
Trustees Act 1962 (WA) s 92, s 95
Re Atkinson, deceased [1971] VicRp 73; [1971] VR 612, applied
Re Beddoe [1893] 1 CH 547, applied
Macedonian Church v Eminence Petar [2008] HCA 42; (2008) 237 CLR 66, applied
Marley v Mutual Security Merchant Bank and Trust Co Ltd [1990] UKPC 44; [1991] 3 All ER 198, cited
Owners of "Shin Kobe Maru" v Empire Shipping Co Inc (1994) 181 CLR 404, cited
F P Smith (sol) as litigation guardian for beneficiary James Edward Coore
McInnes Wilson Lawyers for the beneficiary, James Edward Coore
Simon George Coore, beneficiary, appeared on his own behalf
Christopher Robert Coore, beneficiary, appeared on his own behalf
[1] On 22 February 2013 the applicant filed an application in court for directions under s 96 of the Trusts Act 1973 in the following terms:
"1. a direction, pursuant to s 96 of the Trusts Act 1973 (Qld), whether he would be justified in continuing to prosecute the claims in proceeding S 13644 of 2010 against Penelope Doone Coore on behalf, and at the expense, of the estate of George Harold Coore, deceased.
[2] Section 96(1) of the Trusts Act 1973 (Qld) is in the following terms:**
"96 Right of trustee to apply to court for directions
(1) Any trustee may apply upon a written statement of facts to the court for directions concerning any property subject to a trust, or respecting the management or administration of that property, or respecting the exercise of any power or discretion vested in the trustee."
**[3] I have been greatly assisted by the Discussion Paper published by the Queensland Law Reform Commission entitled "A Review of the Trusts Act 1973 (Qld)" WP No 70 published in December 2012 and the Commission's Interim Report, WP No 71. Chapter 12 of the Discussion Paper and the Interim Report deal with the powers of the court under Part 7 of the Trusts Act. Included in those powers are the power of the court to give advice and directions.
[4] This jurisdiction arose from the enactment in England in 1859 of s 30 of the Law of Property Amendment Act (UK) (Lord St Leonards' Act) which created a procedure by which a trustee could obtain the opinion, advice or directions of the court in relation to any question concerning the "management or administration" of trust or estate property. In most Australian jurisdictions, there are statutory provisions similar to s 96 of the Trusts Act which are modelled on s 30 of Lord St Leonards' Act.[1]
[5] An important corollary of the right to seek directions from the court is the protection given to a trustee who follows those directions. Section 97 of the Trusts Act provides:**
"97 Protection of trustees while acting under directions of court
(1) Any trustee acting under any direction of the court shall be deemed, so far as regards the trustee's own responsibility to have discharge the trustee's duty as trustee in the subject matter of the direction, notwithstanding that the order giving the direction is subsequently invalidated, overruled, set aside or otherwise rendered of no effect, or varied.
(2) This section does not indemnify any trustee in respect of any action done in accordance with any directions of the court if the trustee has been guilty of any fraud or wilful concealment or misrepresentation in obtaining the direction or in acquiescing in the court making the order giving the direction."
**[6] Accordingly, a trustee who acts on the direction of the court is taken, as regards his or her own liability, to have discharged his or her duty as trustee so long as the trustee has not been guilty of fraud, wilful concealment or misrepresentation in obtaining the directions.
[7] Where no such directions are sought the trustee must rely on s 76 of the Trusts Act which provides that the court may relieve a trustee wholly or partly from liability where the trustee is, or may be, liable for breach of trust but has acted honestly and reasonably, and ought fairly to be excused for any breach of trust and for omitting to obtain the directions of the court.
[8] In this case, the trustee seeks direction from the court with regard to a proceeding in which he is the plaintiff, (S13644 of 2010); and proceedings in which he is the defendant (S11630 of 2009) to claims for family provision under s 41 of the Succession Act 1981 (Qld).
[9] The utility of such an application was most recently considered by the High Court in Macedonian Church v Eminence Petar.[2] In that case, the trustee of a charitable trust had sought judicial advice about whether to defend proceedings and if it should have the costs of doing so. Gummow A-CJ, Kirby, Hayne and Heydon JJ referred to the role of the equivalent New South Wales provisions, where s 63(1) of the Trustee Act 1924 (NSW) ("the New South Wales Act") is the equivalent of s 96(1) of the Trusts Act, s 63(2) of the New South Wales Act is the equivalent of s 97 of the Trusts Act and s 85 of the New South Wales Act is the equivalent of s 76 of the Trusts Act:**
"The legislative scheme, then, is that it is desirable that trustees in doubt as to a course of action should not proceed with it and seek relief under s 85 afterwards, but rather seek s 63 advice first. That is because one of the things which a trustee invoking s 85 requires to be excused is failure to seek s 63 advice."[3]
**[10] The plurality in the High Court made eight general points about the New South Wales equivalents of s 96 and s 97 of the Trusts Act.[4] They are:
(1) It is not appropriate to read provisions conferring jurisdiction or granting powers to a court by making implications or imposing limitations not found in the express words.[5]
(2) Nothing in the provisions limits their application to "non-adversarial" proceedings, or proceedings other than those in which the trustee is being sued for breach of trust, or proceedings other than those in which one remedy sought is the removal of a trustee from office.[6]
(3) There are no express words, and no implication from the express words, making some discretionary factors always more significant or controlling than others. In particular the section does not provide that the adversarial nature of the proceedings about which the advice is sought, and the tendency of the advice to foreclose an issue in those proceedings, or the fact that the trustees seeking the advice are being sued for breach of trust are of special significance.[7]
(4) The procedure has a summary character to assist the court's administration of trusts by orders less extreme than a general administration order.[8]
(5) The section provides for judicial advice to the trustee to which the trustee would be obliged to adhere and so operates as "an exception to the Court's ordinary function of deciding disputes between competing litigants."[9]
(7) Provision is made for a trustee to obtain judicial advice about the prosecution or defence of litigation in recognition of both the fact that the office of trustee is ordinarily a gratuitous office and the fact that a trustee is entitled to an indemnity for all costs and expenses properly incurred in performance of the trustee's duties. Obtaining judicial advice resolves doubt about whether it is proper for a trustee to incur the costs and expenses of prosecuting or defending litigation. No less importantly, however, resolving those doubts means that the interests of the trust will be protected; the interests of the trust will not be subordinated to the trustee's fear of personal liability for costs. A trustee's application for judicial advice therefore not only protects the trustee but no less importantly protects the interests of the trust.[11]
(8) It should not be regarded as rare or difficult for a trustee alleged to have committed a breach of trust to obtain assistance under the Trusts Act in relation to the defence of the proceedings.[12]
[11] To these principles, additional guidance can be gathered from the decision in Macedonian Church v Eminence Petar as to the role of the court under s 96 and s 97 of the Trusts Act:
(1) The court is entitled to act on the facts stated by the trustee even if they are contested and controversial. The trustee loses the protection afforded by s 97(1) if the trustee "has been guilty of any fraud or wilful concealment or misrepresentation" to the court. It is therefore not necessary or appropriate to determine a challenge to those facts as if it were adversarial litigation.[13]
(2) The court is not just concerned with whether it is in the interests of the trust estate for proceedings to be commenced, continue or defended but whether it is practical and fair for trust assets to be used for that purpose.[14]
(3) As a general rule if the orders are later revoked, the effect would not operate retrospectively.[15]
(4) Judicial advice proceedings should not be used to settle disputes between parties to a trust. The distinction is between deciding whether it would be proper for a trustee to sue or defend and deciding the issues tendered in the proceedings that it is proposed to institute or defend.[16]
(5) Nothing warrants limiting the powers given to the court by reference to some proceedings as "adversarial" and some as not.[17] Classification of the proceedings in which a trustee asks advice about the propriety of institute or defending, as "adversarial proceedings" is not useful in deciding whether advice should be given by the court that instituting or defending the proceedings is proper.
(6) To adopt the words of the Privy Council in Marley v Mutual Security Merchant Bank and Trust Co Ltd[18] in a judicial advice application, "the court is essentially engaged solely in determining what ought to be done in the best interests of the trust estate and not in determining the rights of adversarial parties."[19]
(7) If all that is at stake in proceedings is the liability of a trustee personally to make good the consequences of what is alleged to be the trustee's breach of trust, that would be a powerful reason to make no order permitting such a trustee to defend the suit at the expense of the trust fund.[20]
[12] It is with these principles steadily in mind that I turn to consider this application.
[13] The applicant, Michael Klatt, is an experienced solicitor who is an accredited specialist in the field of succession law. He is, relevantly for this case, the administrator of the estate of George Harold Coore ("George"). Because of the number of people referred to in these reasons who have the surname Coore, I shall use their given names. George died on 17 January 2009 at the age of 75. His last Will was executed on 8 November 2006. At the time George died, he left a widow, Pamela Mary Coore ("Pamela") who was born on 22 May 1935 and three children, Penelope Doone Coore ("Penny"), Simon George Coore ("Simon") and Christopher Robert Coore ("Christopher"). Penny was by then divorced; Simon was married to Michelle Moore ("Michelle"); and Chris was married to Anna Claire Coore ("Anna"). Penny had three children, Sally Pamela Coore ("Sally"), Christopher David Coore ("Christopher David") and Philippa Jane Coore ("Philippa"); Simon and Michelle had no children; and Chris and Anna had two children, George Thomas Coore ("George Thomas") and James Edward Coore ("James").
[14] Under George's Will, Penny and Christopher were appointed executors and trustee of his estate. However on 26 November 2009, Fryberg J granted probate of the Will to Christopher alone. Christopher commenced a proceeding in this court as executor, against his sister Penny in proceeding S13644 of 2010 in which he claimed to recover $715,331.08 from her for the benefit of the estate ("the principal proceeding").
[15] On 21 August 2012, Ann Lyons J revoked the probate granted to Christopher and ordered that a grant of letters of administration annexing George's Will be made to the applicant, Mr Klatt.
[16] Mr Klatt then investigated the financial position of the estate both as at George's death and at the time of his appointment, the steps taken in relation to the administration of the estate by Christopher while he was executor and the prospects of success in the claim made by Christopher, in the principal proceeding. The principal proceeding has been subject to case flow management with orders being made on 11 April 2012 and 18 June 2012. On 21 August 2012, Ann Lyons J, in addition to orders made in this proceeding substituting Mr Klatt as administrator on the estate in place of Christopher as executor, dismissed an application for summary judgment made by Penny in the principal proceeding. Further case flow orders were made on 21 September 2012, 30 November 2012, 19 March 2013 and 1 May 2013. A mediation was held which was unsuccessful.
[17] In addition to the principal proceeding, Simon has made an application under s 41 of the Succession Act for further provision out of George's estate in S 11630 of 2009 ("the family provision claim"). Pamela suffers from Huntington's disease and the Public Trustee is her administrator for financial matters. She has assets of her own of only $10,000. The Public Trustee has informed Mr Klatt that he intends to apply for further provision from George's estate. A notice to that effect was filed in the family provision claim on 22 February 2013.
[18] The trustee, Mr Klatt, seeks judicial advice and directions from the court that relate to these matters:
• whether he would be justified in continuing to prosecute the claims against Penny in the principal proceeding;
• whether Christopher is entitled to any further indemnity out of the estate in respect of costs and outlays incurred by him, whilst executor of the estate, in prosecuting the claims against Penny in the principal proceeding;
• whether he would be justified in compromising Pamela's claim pursuant to s 41 of the Succession Act for further provision to be made for her out of George's estate;
• whether he would be justified in compromising or defending Simon's claim pursuant to s 41 of the Succession Act for further provision to be made for him out of George's estate.
Should the trustee continue to prosecute the principal proceeding?
[19] Mr Klatt has sworn that George's estate has been substantially depleted. When he died, the net value was approximately $614,500. Now its net value may be as low as $22,000 if Christopher's liability of $115,000 still outstanding to his solicitors is paid out of the estate.
[20] So far as whether or not the court should direct that it is appropriate for the trustee to continue to litigate the principal proceeding a number of factors should be taken into account. They include the merits of the claim, the costs of further prosecuting the claim, the fruitfulness of further prosecuting the claim and fairness to all of the beneficiaries. All of these are relevant to the principal question which is what is in the best interests of the trust.
[21] The applicant trustee has submitted that no more of the estate's money should be spent in prosecuting the claims against Penny in the principal proceeding. He has obtained detailed advice from counsel as to the prospects of success in the claim which consider earlier advices given to Christopher. The opinions of counsel have been tendered and sealed on the court file. I have considered those opinions in detail.
[22] This is not the occasion to determine the conflict between the parties but it is relevant to note that the merits of the claim do not in this case constitute a compelling reason to continue with the litigation by the trustee; in other words there are insufficient prospects of success to justify my view expending further money out of the estate. The estate does not have sufficient assets out of which to indemnify the trustee against the legal costs he would be likely to incur in prosecuting the claims to judgment and, even in the relatively unlikely event that he was successful, in enforcing any judgment against Penny.
[23] The obligation of the trustee to get in the estate does not in my view in this case include the obligation to litigate this claim as pleaded. The trustee is not bound to use his own funds to attempt to resolve this dispute between the beneficiaries: see Re Atkinson, deceased.[21]
[24] If on the other hand, as seems more likely, the claim in the principal proceeding is not successful, the estate will be left insolvent and that will be to the detriment of all of the beneficiaries and particularly Penny who is a more substantial beneficiary of the estate than her brothers, Christopher and Simon. None of the beneficiaries has offered to provide or secure indemnity to the trustee against the costs he would incur in further prosecuting the claims against Penny in the principal proceedings including any costs he might be ordered to pay in that proceedings. In all of the circumstances in my view the trustee would not be justified in continuing to prosecute the claims against Penny in the principal proceeding. To do so would not be in the best interests of the trust.
Should Christopher prosecute the principal proceeding?
[25] If the trustee does not continue to prosecute the principal proceeding, a question arises as to whether or not Christopher should be entitled to continue the principal proceeding as a derivative action. Christopher's material shows that he has no assets of his own and owes a considerable amount of money to the solicitors who were acting for him as executor of the estate. I have already referred to the unlikelihood that the claim will be successful. Further, in spite of correspondence from Penny's solicitors received by Christopher when he was trustee of the estate he did not apply to the court for directions under s 96 of the Trusts Act and accordingly did not have any protection under s 97 of the Trusts Act. To allow Christopher to continue the action as a derivative action would be to further dissipate whatever Penny has that remains from the monies she received from her father George while he was alive and most likely ensure that there was nothing available for Pamela's claim for further provision.
[26] In all of the circumstances it would be inappropriate for the court to allow the principal proceeding to continue as a derivative action even if Christopher were to take on the burden of any costs incurred himself.
[27] The next question that arises is whether or not Christopher should be indemnified for the legal costs that he incurred in undertaking the litigation prior to Mr Klatt being appointed as the trustee. When Christopher undertook the litigation without seeking s 96 directions he ran the risk that he would not be indemnified from the estate. A trustee ought not to engage in litigation lightly and if inclined to do so unless he or she wishes to take the risks of not being indemnified for the costs, such trustee ought to seek the directions of court under s 96 of the Trusts Act. To fail to do so is to put the trustee at risk of having to pay the litigation costs himself or herself. In Re Beddoe[22] Bowen LJ expressed this rule clearly together with its justification that if a trustee acts on the basis that he or she can litigate with impunity personally as to costs the trust estate could easily be lost:**
"If there be one consideration again more than another which ought to be present in the mind of a trustee, especially the trustee of a small and easily dissipated fund, it is that all litigation should be avoided, unless there is such a chance of success as to render it desirable in the interests of the estate that the necessary risk should be incurred. If a trustee is doubtful as to the wisdom of prosecuting or defending a lawsuit, he is provided by the law with an inexpensive method of solving his doubts in the interest of the trust. He has only to take out an originating summons, state the point under discussion, and ask the Court whether the point is one which should be fought out or abandoned. To embark in a law suit at the risk of the fund without the salutary precaution might often be to speculate in law with money that belongs to other people."
**[28] Unfortunately the judgment of Christopher in this case appears to have been clouded by suspicion and family disharmony and he did not make his decisions rationally, objectively and in the best interests of the trust. He failed to seek directions from the court pursuant to s 96 and only those costs which have been awarded by courts to be paid to him from the estate could be considered the legal costs properly incurred by him and prosecuting the claims against Penny in the principal proceeding. The other costs could not be said to have been incurred by him reasonably, honestly and prudently in the discharge of his proper duties as a trustee.
[29] Of the total legal costs incurred by Christopher, as the submissions filed on behalf of the applicant show, only $121,354.06 was or is payable out of the estate pursuant to orders of the court. As the sum of $145,185.95 has already been paid out of the estate, no more funds of the trust estate should be used to pay orders for costs incurred by Christopher as trustee. Christopher was put on notice that there would be an argument that if he continued to litigate the claims in the principal proceeding he would do so at his own risk as to costs and indeed his own solicitors warned him that the fees for the matters conducted for him were regarded by them as higher than might otherwise be the case because of the excessive communication that he had with them. They warned him that he would be personally liable if the fees were seen as unreasonable. In all of the circumstances my advice to the trustee would be that Christopher is not entitled to any further indemnity out of the estate in respect of costs and outlays incurred by him whilst executor of the estate in prosecuting the claims against Penny in the principal proceeding. The difference between the amount he has received for costs and amount he is entitled to is not sufficient to justify any further action being taken with regard to recouping those costs.
[30] The applicant has submitted that there is much to be said in favour of the view that the application for further provision that the Public Trustee has foreshadowed making on behalf of Pamela would enjoy good prospects of success, given the length of her marriage to George, the extent to which his estate was derived from her assets, particularly an inheritance received by Pamela in 2000, her poor financial position and her ill-health. In those circumstances, particularly given the agreement of George and Pamela's children, it is appropriate to give advice to the trustee that he would be entitled to compromise Pamela's application on the basis that she receives what remains of the estate. He would also be justified in compromising Simon's application on the basis that it be dismissed with no order as to costs.
1. Pursuant to section 96 of the Trusts Act 1973 (Qld), the applicant is advised and directed that:
(a) he would be justified in taking no further steps to prosecute the claims in proceeding S 13644 of 2010 (principal proceeding);
(b) he would be justified in not extending any further indemnity out of the estate of the deceased in respect of legal costs and outlays incurred by Christopher Robert Coore, whilst he was executor of the estate, in prosecuting the claims in the principal proceeding;
(c) he would be justified in seeking to compromise the application of the deceased's widow, Pamela Mary Coore, pursuant to section 41 of the Succession Act 1981 (Qld) for further provision to be made for her out of the estate of the deceased on the basis that she be given, absolutely, whatever remains of the deceased's estate once it has been completely administered;
(d) he would be justified in seeking to compromise the application of the deceased's son, Simon George Coore, in proceeding S 11630 of 2009 pursuant to section 41 of the Succession Act for further provision to be made for him out of the estate of the deceased on the basis that it be dismissed with no order as to costs;
2. Pursuant to r 700(2) of the Uniform Civil Procedure Rules 1999 (Qld), Christopher Robert Coore is not entitled to have any further indemnity out of the estate of the deceased in respect of legal costs and outlays incurred by him, whilst he was executor of the estate, in prosecuting the claims in the principal proceeding;
3. The following opinions of counsel tendered on the hearing of the application, that is to say:
(a) the opinions of Mr Porter of Counsel dated 1 September 2009, 7 October 2010, 10 December 2010 and 18 February 2011;
(b) the opinions of Mr O'Neill of Counsel dated 9 June 2011 and 24 April 2013;
(c) the opinion of Mr Fraser of Counsel dated 12 March 2012;
(d) the opinion of Mr Otto of Counsel dated 26 November 2012,
be placed in a sealed envelope marked "Not to be opened without an order of the court";
4. The costs of Fredric Peter Smith as litigation guardian for James Edward Coore be assessed on the indemnity basis and paid out of the estate;
5. The applicant's costs of this application be assessed on the indemnity basis and paid out of the estate.
[1] Trustee Act 1925 (ACT) s 63; Trustee Act 1925 (NSW) s 63; Trustee Act 1936 (SA) s 91; Trustees Act 1962 (WA) ss 92, 95.
[5] At 89, [55]; Owners of "Shin Kobe Maru" v Empire Shipping Co Inc (1994) 181 CLR 404 at 421.
[18] [1990] UKPC 44; [1991] 3 All ER 198 at 201.
[19] Macedonian Church v Eminence Petar at 107, [125].
[21] [1971] VicRp 73; [1971] VR 612 at 616 per Gillard J.
[22] [1893] 1 CH 547 at 562.
Coore
Coore
(2008) 237 CLR 66
(1994) 181 CLR 404